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What Business Owners Need To Know About The New Aid Package

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Just before midnight on Monday, Congress passed a law enabling $920 billion in stimulus and relief to fight the economic devastation caused by the pandemic. The new legislation is imminently expected to be signed by President Trump and will be the fifth piece of major legislation  enacted in response  to the COVID pandemic.

It will fund expanded unemployment benefits, recovery rebates, school programs, transportation spending, COVID testing and vaccines, and relief for small businesses. Consistent with our firm’s focus, here’s a roundup of what small business owners need to know right now.

The bill is 5,593 pages in length, and the fine print of the small business aid provisions will be widely analyzed over the next week. New regulations and forms for submitting loan requests are not yet available from the Small Business Administration. Look for those details to be posted here in the days ahead.

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The new aid package to small business totals $325 billion, with $284 billion of that amount earmarked for a second round of Paycheck Protection Program (PPP) loans. In addition, another $20 billion was allocated for Economic Injury Disaster Loans (EIDL). Also, $15 billion is reserved for live venues, independent movie theaters and cultural institutions, according to the bipartisan Committee for a Responsible Federal Budget.

The aid is desperately needed. The vast majority (91%) of small businesses  that qualified for PPP in the first round of forgivable PPP loans funded by the CARES Act have already spent their entire PPP loan, and more than half (53%) expect to need additional relief in 2021, according to last week’s survey of business owners by the National Federation of Independent Businesses (NFIB).

If you previously received a PPP loan, you may apply for a second loan, according to a story in today’s Wall Street Journal, citing a senior staffer for Republicans on the House Small Business Committee. To qualify for a second round PPP loan, a business must have suffered a 25% reduction in gross receipts during a particular quarter in 2020, compared with that  same quarter in 2019, according to The Journal. First-time PPP borrowers reportedly will be subject to the program’s original eligibility rules.

The new law will allow businesses to deduct expenses incurred during the PPP loan process, including payments to advisors. The IRS had previously indicated that businesses could not deduct expenses associated with securing a PPP or receiving ongoing advice regarding accounting for the loan , including the tax and other financial risks. The first round of the federal loan program to small businesses, administered by the Small Business Administration in the CARES Act effective March 27, 2020, was widely criticized as overly complex and favoring large businesses over mom-and-pop shops with 10 or fewer employees.   

Perhaps the most controversial provision contained in the new aid package affecting small business owners allows a 100% deduction on the cost of business meals. An attempt to aid restaurants, it is often pejoratively referred to as the “three-martini lunch deduction.”

Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. It does not take into account your investment objectives, financial or tax situation, or particular needs. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. The material represents an assessment of financial, economic and tax law at a specific point in time and is not a guarantee of future results.

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